Rising Interest Rates

The Federal Reserve met last week and they left the Fed Funds Rate where it is as expected. However, they reiterated their intention to raise rates in December and into next year. Their reasoning looks flawed. They could point to an increase in inflation as seen in last week’s PPI report. That would be reasonable if you didn’t see that most of the inflation was caused by oil prices and they have already fallen hard, so this month inflation will ease.

They seem to ignore the soft and continued softening of the housing market, the weak economies in the rest of the world, and current interest rate levels already having a negative impact on our economy. Mortgage rates for a 30 year fixed is above 5%.

Inflation pressures on wages might be rising but with worldwide economic growth being ratcheted downward by the IMF, inflation should stay well contained.

Finally, the stock market, a leading economic indicator, is struggling. It could be just a re-adjustment period where excesses in the certain stocks are being squeezed out. That would be a good argument but when you have 50% of the S&P500 companies falling 20% or more, thus being in Bear market territory, there is not a lot of excess left to squeeze.

The FED is pushing us into the next recession and only a stop in their current policy will help. That stop is not coming if you believe what they are saying.